Christie Risks All to Take on Unions

The proverbial can only be kicked so far before the can rusts away to nothing. That is what Police in Stockton, California have found out and that is what the pensioners in the entire Illinois retirement system will soon find out.

Stockton, the central California city trying to avert bankruptcy, can continue suspending accrued vacation and sick time payouts for its retiring and departing police officers, a state judge ruled.

San Joaquin County Superior Court Judge Lesley D. Holland yesterday rejected the Stockton Police Officers’ Association’s request for an order reinstating the pay. David E. Mastagni, a lawyer representing the association, said some officers have spent 30 years accruing the compensation.

“I’m proceeding on the assumption that bankruptcy, if not a certainty, is a highly probable outcome,” Holland said. The city is trying to remain solvent and win concessions from creditors through negotiations under a state law designed to discourage municipal bankruptcies, the judge said.

City Default

The City Council on Feb. 28 agreed to extend its fiscal emergency declaration, default on $2 million in bond payments and suspend sick leave and vacation payouts to retiring workers. Officials decided to suspend the payouts to discourage workers who fear the mediation would lead to a cut in their benefits from retiring early and draining city coffers.

On April 12, San Francisco-based Wells Fargo & Co. (WFC), the fourth-largest U.S. bank by assets, was awarded possession of three Stockton parking garages in a separate lawsuit it filed as a bond trustee against the city. San Joaquin County Superior Court Judge Roger Ross made the decision about who controls the garages after Stockton missed a $779,935 payment on lease revenue bonds issued in 2004.

The City Council on Feb. 28 agreed to extend its fiscal emergency declaration, default on $2 million in bond payments and suspend sick leave and vacation payouts to retiring workers. Officials decided to suspend the payouts to discourage workers who fear the mediation would lead to a cut in their benefits from retiring early and draining city coffers.

Stockton has already made a mistake. It lost nice parking assets because it has not yet filed for bankruptcy. It should have filed first, then missed the bond payment. Two groups should lose in this mess: city employees with untenable pension benefits and bondholders.

This month, the Teachers’ Retirement System of the State of Illinois made a dire announcement to its members. TRS, which covers most public-school teachers in Illinois outside Chicago and has more than 360,000 members, said the following:

“If the General Assembly does not continue to provide all of the funding called for in state law, calculations done by TRS actuaries show that the System could become insolvent as soon as 2030. Preventing insolvency may include significant changes for TRS -- new revenues must be generated and if they are not benefits may have to be reduced.”

The teachers’ fund is one of the country’s worst-financed statewide pension systems, reporting that it is only 47 percent funded. And that’s if you buy the system’s rosy accounting assumptions, including that it will achieve 8.5 percent annual returns on its assets. This level is tied for the most aggressive investment assumption among state pension funds in the country, and the fund has had to get creative in an effort to meet it. Pensions & Investments magazine says it has the fourth-riskiest pension investment portfolio in the U.S., with less than 17 percent of its investments in fixed income and cash.

The system’s funding status is so poor that it achieved a 23.6 percent return on investments in 2011 and still managed to shave only $2 billion off its $46 billion unfunded liability. And it’s not as though the fund can make such gangbuster returns consistently -- in 2009, it returned negative 22.7 percent.

Closing the TRS funding gap -- and the gap at the State Retirement Systems of Illinois, which is only 36 percent funded -- will depend on taxpayers’ willingness to start paying far more than they ever did for pensions. And as the TRS statement makes clear, that is far from a sure bet, meaning that pensioners may see their benefits cut.

Chris Christie Willing to Sacrifice Career to Take on Teachers' Unions

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